Do incentives really work on motivation?

I come from the “corporate world”, where I’ve had the chance to manage large teams of professionals, and I have always been interested in how to provide incentives and increase performance levels.

Yet there is, unfortunately, a mismatch between what science knows and what business does.

In fact, throughout my experience I have realized that companies are used to motivating their employees with negative strengths as a primary strategy. This means that the fear of punishment is strategy #1. Actually, fear can work very well in the short term, though not in the long term—sooner or later people will lose their momentum and motivation. The current ‘Arabic spring’ is a good example: People live with fear and do what ‘management’ wants them to do, until they no longer do so—and they rebel!
Financial incentives, bonuses, commissions, and pay for performance plans are strategy #2. This is a partially effective and generally appreciated strategy; nevertheless, its own effectiveness is always very limited and controversial.
As brilliantly explained by best selling author, speaker and ghost writerDaniel Pink during his speech @ Ted (Technology Entertainment and Design, a global set of conferences owned by the private non-profit foundation, formed to disseminate “ideas worth spreading”), it has been scientifically proven that financial rewards work well when there is a simple set of rules and a clear destination—when the goal is extremely clear and people need only concentrate their minds on a simple, very defined task. Unfortunately, this kind of incentive has an endpoint, because the reward actually narrows focus and restricts other creative possibilities. Considering that in western Europe, North America, and Australia many white-collar workers are doing routine, rule-based, left brain work (like certain kinds of accounting, financial analysis, cold calling) and all these jobs are fairly easy to computerize (software can do it faster) or outsourced (low cost providers can do it cheaper), what really matter now, in our countries, are the more right-brained, creative, conceptual kind of abilities. And these are not stimulated solely by financial incentives.
The candle example is a good one: If you haven’t seen it yet, watch Daniel Pink’s video Click here to watch video:

Some time ago Dr. Dan Ariely (one of the greatest economists of our times) conducted an experiment with some MIT (Massachusetts Institute of Technology) students, in which he used a number of games involving creativity, motor skills, and concentration. According to their performances, he offered 3 levels of rewards: low, medium, and high. These were the results:
1) As long as the task involved only mechanical skills, the bonus worked as expected: the higher the pay, the better the performance.
2) When the task called for even rudimentary cognitive skills, a high reward led to poorer performance.
3) In 8 of the 9 tasks he examined across the 3 experiments, higher incentives led to worse performances.

As a conclusion, it seems that financial incentives can result in negative impact on overall performances.
Furthermore, human beings (as any other animal in nature) tend to get used to something very quickly, which means that employees tend to expect money incentives every time they do something special.
These, then, are the so called ‘carrot and stick’ strategies.However, I believe in a third strategy, which empowers and enhances people’s motivation through their personal self improvement. Abraham Harold Maslow was an American professor of psychology at Brandeis University, Brooklyn College, New School for Social Research and Columbia University who created Maslow’s hierarchy of needs. He stressed the importance of focusing on the positive qualities of people. He carried out his investigations into human behavior and he suggested that there are five sets of goals which may be called basic needs.
These are: physiological, safety, love, esteem and self-fulfillment.
He arranged these into a series of different levels or the order of importance of these basic needs.
Man’s basic needs are physiological for example, hunger, thirst, sleep. When these are satisfied they are replaced by safety needs, reflecting his desire for protection against danger or deprivation. These in turn, when satisfied, are replaced by the need for love and desire to belong to a group, to give and receive friendship and to associate with people. When these needs have been satisfied, there are the esteem needs (self-esteem and self-respect) which are affected by a person’s standing reputation and his need for recognition and appreciation. Finally individuals have a need for self-actualization and desire for self-fulfillment, which is an urge by individuals for self-development, creativity and job satisfaction.Therefore management rewards system should be endeavoring to satisfy the individual’s higher level needs for esteem, self-fulfillment and personal development.
When a person is moved by his internal voice, by his personal and intimate pride, this power is bigger and stronger than any other external pressure.Companies need to help their employees to improve as individuals: In this way, they will start to feel full of passion for life, for others, and for their job. Self-improvement will also induce them to give more personal contribution to work and to the world at large—a pure win-win situation.The secret to high performance isn’t ‘reward and punishment’—the carrot and stick—but intrinsic motivation that drives us to do things because they matter.

I don’t think this cannot be applied everywhere as it would vary from territory to territory i.e. In UAE most of the work force are expatriates and they know that one day they have to leave for their mother country, one day or the other so for them the Financial Incentives become of most importance.

I agree with Adil that the importance of financial incentives can vary from territory to territory, but let me ask you a question: how many of these people meet their targets at the end of the month or at the end of the year?

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